Bitcoin Onchain Credit Strategy
Bitcoin Onchain Credit Strategy earns a fixed premium from institutional borrowing. Flow Traders, a leading global trading firm (Euronext: FLOW), borrows stablecoins through Cap Protocol to finance its market-making operations. Deposits in this strategy provide the collateral coverage behind that credit line, and Flow Traders pays a fixed premium for it. The vault collects the premium in USDC, converts it to LBTC, and compounds it, so returns accrue in Bitcoin terms.
The strategy uses no leverage and pays no token incentives; the premium is its only yield source. It is available as a standalone vault and as one of the two allocations in Bitcoin Earn.
Yield Source
The premium exists because Flow Traders has a standing need for stablecoin liquidity. Market-making requires funding inventory across venues every day, and the firm cannot meet that need through conventional DeFi lending (see Collateral Structure).
Deposits routed through Bitcoin Earn also remain eligible for the BARD rewards that apply to that vault.
How It Works
Four parties are involved:
- Collateral provider: Lombard, which supplies the coverage from depositor Bitcoin
- Borrower: Flow Traders, the only borrower at launch
- Lenders: Cap Protocol’s USDC depositors, who fund the credit line
- Facilitator: Cap Protocol, which enforces the loan terms between borrower and lenders
Collateral provisioning between Lombard and Flow Traders is set out in a bilateral legal agreement, the only part of the structure that is not enforced onchain. The collateral vault, the credit line, the premium payments, and the liquidation rules all run in smart contracts.
Collateral Structure
DeFi lending protocols assume the borrower posts collateral into a shared pool. Publicly listed trading firms generally cannot do that: their covenants restrict pledging assets into permissionless markets, regardless of the firm’s creditworthiness. Posting collateral is also expensive for a trading firm, since trading capital is put to better use in the book than locked against a loan.
The strategy reverses the usual arrangement: depositors supply the collateral coverage, and the borrower pays them for it. The structure itself is not new; it has existed in institutional over-the-counter credit markets. The difference is that its components (collateral delegation, underwriting, and loan administration) now exist as shared onchain infrastructure, so the same trade can be offered as a vault deposit rather than a private OTC arrangement.
Risk Parameters
The credit line operates inside a contracted loan-to-value band, monitored and enforced by Cap:
| LTV | What happens |
|---|---|
| 55-65% | Contracted operating band; the position is kept here in normal operation |
| 80% | Margin call; Cap opens a 12-hour grace period to bring the position back toward the band |
| 90% | Hard liquidation; the LBTC coverage is slashed, sold for USDC, and returned to the lenders |
Because Flow Traders pays only on what it draws, keeping the position at the bottom of the band makes both the borrowed amount and the premium predictable. The top of the band leaves a 15-point gap to the margin-call level, and a further 10 points to liquidation.
Flow Traders
Flow Traders is a leading global trading firm (Euronext: FLOW), founded in 2004 and active in exchange-traded products such as ETFs. It has been among the most active institutional participants in digital asset markets, with a central role in early Bitcoin and Ethereum ETF market-making.
It is the first publicly listed, regulated institution to access onchain credit through a structure of this kind.
Infrastructure
Cap is a private credit platform on Ethereum where each loan is backed by a dedicated underwriter with its own capital at stake. Its investors include Franklin Templeton, Susquehanna, and IMC Trading, and it has processed over $4 billion in cumulative volume.
BTC.b deposits reach the Ethereum vault from Avalanche over Chainlink’s Cross-Chain Interoperability Protocol (CCIP), selected for its security architecture: 16 independent node operators per bridge lane, rate limits that act as circuit breakers, and SOC 2 Type 2 compliance.
Onchain Credit vs. Money Market
Bitcoin Earn allocates between this strategy and the Sentora-managed Bitcoin Money Market Strategy, which earns variable yield from DeFi lending markets.
The meta-vault manages the allocation between the two based on risk-adjusted performance.
Deposit
There are two ways to enter the strategy:
- Directly, into the standalone vault at lombard.finance/app/btcoc
- Through Bitcoin Earn, at lombard.finance/app/earn , where it is one of the vault’s two allocations
The standalone vault lives on Ethereum and accepts LBTC, BTC.b, and native BTC; native BTC is converted to LBTC automatically. BTC.b deposits are facilitated from Avalanche to the Ethereum vault over Chainlink CCIP (see Infrastructure); withdrawals are settled on Ethereum only. Both routes issue vault shares whose value grows as the premium compounds. Deposit steps and withdrawal mechanics for the meta-vault are covered in Bitcoin Earn.
Contracts
The Onchain Credit vault is an ERC-4626 vault deployed on Ethereum; the vault contract and the BTCoc share token are the same contract.
| Contract | Address |
|---|---|
| Onchain Credit vault / BTCoc token (Ethereum) | 0xf14F678d9c05798ba61652a950a05D74aD2E0A6C |
Always confirm contract addresses against Lombard’s official channels before interacting with the vault.
Risks
- Financial risk (contractually mitigated). The counterparty is contractually obligated to cover losses within a period significantly shorter than the redemption time, and the legal agreement includes default provisions that protect the strategy’s depositors.
- Counterparty risk (high quality). Counterparty exposure is to a creditworthy and transparent entity: Flow Traders, a publicly listed, regulated global trading firm (Euronext: FLOW) with a 22-year institutional track record.
- Technical risk (bounded). Collateral sits in a Symbiotic vault contract, which has held more than $2 billion in TVL over the past two years and undergone extensive audits. Cap’s liquidation logic is governed by a 3/5 multisig with a 24-hour timelock, and oracle exposure is limited to Chainlink’s BTC/USD price feed and Lombard’s LBTC/BTC feed.
Note: Bitcoin Earn is not available to U.S. or U.K. persons. Participation in yield strategies involves risk, including the potential loss of principal. See the Terms of Service and the Global Risk Disclosures.